Australia Broadband Operator Would Adapt to Change of Government

The Australian national broadband network’s state-owned operator said it can change its A$37.9 billion ($40 billion) project should Prime Minister Julia Gillard’s Labor government lose power.

“It’s always possible to change direction, it’s possible to stop things as they are running today,” NBN Co. Chief Executive Officer Mike Quigley said in an interview on Australian Broadcasting Corp. television yesterday. “Our job is to provide as much commercial flexibility as we can” for the company’s owner.

Tony Abbott’s Liberal-National coalition, on track to win elections that must be held by November 2013, is vowing to cut the project’s costs, which Gillard’s government last week said had risen 3.9 percent, or about A$3 billion. Labor intends to roll out the mainly fiber-optic network, or NBN, to 93 percent of Australia’s population during the next decade, with the rest served by wireless and satellite.

The opposition’s policy would save “upward of A$20 billion,” Shadow Communications and Broadband Minister Malcolm Turnbull said in an interview broadcast on Sky Television on Aug. 11.

While Labor’s plan is for broadband fiber to be connected to every home, the coalition wants to install a fiber-to-the- node model, in which broadband fiber is installed as much as a kilometer from houses that are then connected to the network by copper wire.

Privatization Plans

“We are not going to dismantle the NBN,” Turnbull said. “We are going to complete the job of updating everybody’s broadband to very fast speeds, but we’ll do so predominantly using fiber-to-the-node, a much, much cheaper and faster-to- deploy technology” than the government’s, he said.

A Liberal-National government would also privatize NBN Co., Turnbull said, while ruling out a sale to a retail telecommunications provider, such as Telstra Corp. (TLS) Australia’s biggest phone company is getting A$11 billion from the government after agreeing to give up control of its copper wires to make way for the new system.

“The sooner you could privatize it, the better,” Turnbull said.

Telstra posted second-half profit on Aug. 9 that missed analysts’ estimates as it spent more to add mobile phone customers while winding down its former monopoly fixed-line business. Shares of the Melbourne-based company, which reached a three-and-half-year high on Aug. 6, slumped 7.6 percent in the past three trading days on the Australian stock exchange.

Higher Costs

NBN is on course to begin or complete work on connecting 758,000 premises by the end of 2012, Communications Minister Stephen Conroy said on Aug. 8 as he released the network’s corporate plan for the next three years.

“This plan demonstrates the government is delivering on its commitment to provide all Australians with fast, reliable, affordable broadband,” he said.

The network will eventually generate a 7 percent return for taxpayers, Conroy said. Capital costs now stand at $37.9 billion, 3.9 percent higher than a revised estimate, he said. The original cost forecast, announced in April 2009, was A$43 billion.

“We are one year into a 10-year build on a 30-year project,” Quigley said in the interview shown yesterday. “Overall the project is running as well as you could expect.”

Beyond 2021, NBN Co. could “generate very large gross margins because it’s a very big up-front capital investment but the operating costs of the company are relatively low,” he said.

The network will provide fiber-optic access to about 3.5 million premises in the country by mid-2015, Gillard said on March 29.

While a poll published Aug. 7 showed support for her Labor government rose to the highest level in six months, Gillard is still tracking toward defeat in next year’s elections. Labor’s primary vote increased five points to 33 percent from two weeks before, while support for Abbott’s coalition dropped one point to 45 percent, the Newspoll for the Australian newspaper showed.

To contact the reporter on this story: Jason Scott in Canberra at jscott14@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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